Basis100 Inc. - MRRS Decision
Headnote
Mutual Reliance Review System for ExemptiveRelief Applications -- issuer bids -- convertible debentures-- debentures convertible into common shares at a conversionprice far in excess of current value of common shares -- conversionfeature of no material value -- debentures trade like non-convertible,unsecured debt -- convertible debentures are out-of-the-money-- circular to include summary of opinion letter on convertibilityfeature -- applicant exempt from valuation requirement.
Applicable Rule
61-501 -- Insider Bids, Issuer Bids, Going PrivateTransactions and Related Party Transactions, ss. 3.3, 3.4, and9.1.
IN THE MATTER OF
THE SECURITIES LEGISLATIONOF
BRITISH COLUMBIA, ALBERTA,SASKATCHEWAN, MANITOBA,
ONTARIO, QUEBEC, NOVA SCOTIAAND NEWFOUNDLAND
AND LABRADOR
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEWSYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
BASIS100 INC.
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof British Columbia, Alberta, Saskatchewan, Manitoba, Ontario,Quebec, Nova Scotia and Newfoundland and Labrador (the "Jurisdictions")has received an application (the "Application") fromBasis100 Inc. ("Basis100") for a decision under thesecurities legislation of the Jurisdictions (the "Legislation")that, in connection with the proposed purchase by Basis100 ofa portion of its outstanding 6.00% Convertible Unsecured Debenturesdue December 30, 2006 (the "Debentures") pursuantto a formal issuer bid (the "Proposed Bid") the requirementsin the Legislation to obtain a valuation of the Debentures (the"Valuation Requirement") shall not apply to Basis100;
AND WHEREAS pursuant to the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the Ontario Securities Commission is the principal regulatorfor the Application;
AND WHEREAS, unless otherwise defined,the terms herein have the meaning set out in National Instrument14-101 Definitions or in Quebec Commission Notice 14-101;
AND WHEREAS Basis100 has representedto the Decision Makers that:
1. Basis100 is a company existing under theBusiness Corporations Act (Ontario) as a result ofthe amalgamation of e-Net Financial Services (Canada) Inc.and Autrex Inc. on October 25, 1999. Its principal officeis located in Toronto, Ontario.
2. Basis100 is authorized to issue an unlimitednumber of common shares (the "Common Shares"). Asof July 4, 2003, Basis100 had outstanding 37,267,657 CommonShares. As of July 4, 2003, Basis100 had outstanding Debenturesin the aggregate principal amount of $20,000,000.
3. Basis100 is a reporting issuer or the equivalentin each of the Jurisdictions and is not in default of anyrequirements of the Legislation. Its Common Shares are listedand posted for trading on the Toronto Stock Exchange (the"TSX") under the trading symbol "BAS".The Debentures are listed and posted for trading on the TSXunder the trading symbol "BAS.DB".
4. The Debentures were issued pursuant toan indenture dated as of December 21, 2001 (the "Indenture")between Basis100 and CIBC Mellon Trust Company, as trustee,and distributed pursuant to a short form prospectus datedDecember 17, 2001.
5. The Indenture provides that Basis100 maypurchase for cancellation any or all of the Debentures inthe open market by tender or by private contract, subjectto any regulatory approval required by law. Also, in the eventof a change of control, Basis100 is obligated to make an offerto purchase all the Debentures at a price equal to 101% ofthe Debenture principal amount. There are no other restrictionsupon Basis100's ability to purchase the Debentures and therehas not been a change of control.
6. The Debentures are convertible at the Debentureholder's option into Common Shares at any time prior to theearlier of December 30, 2006 and the last business day immediatelypreceding the date specified for redemption by Basis100. Theconversion price for the Debentures is $3.75 per Common Share,being a rate of approximately 26.67 Common Shares per $100principal amount of Debentures.
7. To the knowledge of management of Basis100,no person or company holds more than 10% of the aggregateprincipal amount of the Debentures other than institutionalinvestors that are not insiders of Basis100.
8. Over the twelve month period prior to July3, 2003, the Debentures traded at a price range of $70.00to $34.00 per $100 principal amount of Debentures.
9. As at July 3, 2003, the Debenture closingprice on the TSX was $68.00 per $100 principal amount of Debentures.
10. The Debentures are convertible into CommonShares at a conversion price which is significantly in excessof the current market price of the Common Shares. On July3, 2003, the closing price of the Common Shares on the TSXwas $0.61, which was approximately 16.27% of the conversionprice of the Debentures at such time. Over the 12 months precedingthat date, the Common Shares traded on the TSX in a rangebetween $1.70 and $0.33 per Common Share.
11. Under the Proposed Bid, Basis100 intendsto acquire up to an aggregate principal amount of $5,000,000of Debentures, representing approximately 25% of the outstandingDebentures. Basis100 anticipates using proceeds from the recentsale of some of its assets to fund the Debenture acquisitions.
12. In a letter (the "Opinion Letter")dated July 22, 2003, Griffiths McBurney & Partners ("GMP")advised Basis100 that, in GMP's opinion:
(a) the convertibility feature of the Debenturesis of no material value; and
(b) the Debentures trade on the TSX likenon-convertible, unsecured debt based on Basis100's underlyingcreditworthiness.
13. The Proposed Bid will proceed by way ofissuer bid circular which will include a summary and a copyof the Opinion Letter.
14. The Proposed Bid will be made in compliancewith the requirements in the Legislation applicable to formalbids made by issuers, except to the extent exemptive reliefis granted by the Decision Makers.
15. The Proposed Bid will be an "issuerbid" within the meaning of the Legislation in the Jurisdictionsbecause the Debentures are convertible debt securities.
AND WHEREAS pursuant to the System, thisMRRS Decision Document evidences the Decision of each of theDecision Makers (collectively, the "Decision");
AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation providesthe Decision Maker with the jurisdiction to make the Decisionhas been met;
THE DECISION of the Decision Makers underthe Legislation is that, in connection with the Proposed Bid,the Valuation Requirement contained in the Legislation shallnot apply to Basis100, provided that Basis100 complies withthe other requirements in the Legislation applicable to formalbids made by issuers.
July 31, 2003.
"Ralph Shay"